Where a worker became entitled to disability insurance benefits and to
periodic payments pursuant to the Michigan Workmen's Compensation Act, and
elected to receive the latter award in a single lump-sum "redemption
payment" in lieu of weekly payments, held, the so-called
"redemption settlement" under the Michigan statute is a commutation of, or
a substitute for, periodic payments within the meaning of section 224(a)
and (b) of the Social Security Act (42 U.S.C.A. 424(a) and (b)), and thus
requires reduction in the disability insurance benefits payable under such
Act. Further held, the benefit reduction provisions of section 224
of the Act, in principle and in application, do not violate the Due
Process Clause of the Fifth Amendment.

THORNTON, District Judge:

Plaintiff brings this suit to review a final decision of the Secretary of
Health, Education, and Welfare under the provisions of 42 U.S.C.A. §
405(g). Briefly stated, it is plaintiff's position that the decision is
erroneous in four respects. First, plaintiff contends that his
disability dates from a period prior to June 1965 (the effective date of
certain reduction provisions of the Social Security Act, as amended).
Second, plaintiff contends that the lump sum settlement entered
into in lieu of periodic payments to which he became entitled under the
provisions of the Michigan Workmen's Compensation Act was not such a
"commutation of, or substitute for periodic payments" (42 U.S.C.A. §
424(b)) as to be subject to the reduction provisions of the amended Act.
Third, plaintiff contends that the reduction or crediting
provisions of the Act for workmen's compensation benefits are
unconstitutional. Fourth, plaintiff contends that if such
reductions are to be made the formula applicable should be different from
the one here employed.

The factual background of this case is succinctly set forth in the
Hearing Examiner's Decision. We quote verbatim the paragraph from that
decision setting forth such background:

The material facts in the case are not in dispute. In essence, they show
that on December 9, 1963 the claimant fell in his employer's parking lot
and dislocated and fractured his right arm. He was off work for 4½ weeks,
returning in January, 1964. In the interim his arm had been set and he
received physical therapy twice a week. After returning to work he
continued to receive medical care. The claimant had little or no use of
his right arm, being able to lift it from the elbow only, and, therefore,
was placed on small parts only, rather than his usual machine operations
where he worked all kinds of machines and had to lift as much as 100
pounds or more. On the small parts operation, he worked with parts
weighing at most one-half a pound and operating a drill press, burring and
reaming parts weighing from one-half to five ounces. On December 2, 1965
the claimant was accidentally hit on the right arm by another employee and
he was treated for this by a doctor. On January 19, 1966, the claimant
developed pain the left shoulder, which was diagnosed as traumatic
bursitis. This was his last day of work. He was treated for this condition
in January 1966 and throughout February 1966, but with no significant
improvement. He was unable to move either shoulder and in the latter
month, was given a total disability. He continued to be treated, but as
late as June 1, 1966, there was complete loss of function in the right
shoulder and severe limitation of motion in the left shoulder. Based upon
these facts, the claimant alleged in his application for benefits, and the
Administration found, that he was "disabled" from January 19, 1966.

The application for disability was filed March 29, 1966, alleging
inability to engage in "substantial gainful activity" from January 19,
1966. This was allowed. In computing the benefits to which plaintiff
thereby became entitled, the reduction provisions of the 1965 Amendments
to the Social Security Act were applied because of benefits plaintiff had
received from workmen's compensation. Plaintiff then sought and received a
hearing before the Hearing Examiner contesting the application of the 1965
Amendments to his Social Security benefits. At that hearing plaintiff
amended his application to allege that the onset date of his disability
was December 1963, rather than January 19, 1966. This brings us to a
consideration of plaintiff's First contention.

In order for plaintiff to successfully establish the onset of disability
date as December 1963, it must be established that from that date on he
was unable to engage in "substantial gainful activity." 42 U.S.C.A. §
416(i)(1)(A). The fine lines that have been drawn by those courts which
have been confronted with the determination of ability to engage in
"substantial gainful activity" in the plethora of reported disability
cases are hardly relevant to the circumstances present here. Plaintiff
here denies the existence of that which is. No amount of rationalization
that we may employ can render negative that which is positive. Plaintiff
testified that from January 1964 to January 1966 he had worked forty to
fifty hours a week. The fact that he worked on small parts since he could
not lift heavier ones does not affect the "substantiality" of his activity
in light of a forty- to fifty-hour work week. His earnings record from
1962 through 1965 reflects not only gainful activity but upwardly gainful
activity. For the four years 1962 through 1965 his earnings, respectively,
were: $4,280.93, $5,965.77, $6,926.71 and $8,117.27. His contention that
he was unable to engage in "substantial gainful activity" in 1964 and 1965
is so patently ridiculous as to be meritless on its face. Thus, even
though an enumeration of the medical findings might initially lead to the
conclusion that impairments have been established of such proportions that
engagement in work activity is highly unlikely, if in fact a claimant has
engaged in employment which can reasonably be classified as "substantial
gainful activity," he is thereby precluded by the definition of
"disability" from obtaining benefits under the Act. Marshall v.
Gardner, 298 F.Supp. 542, 545 (S.D. W.Va. 1968), affirmed 408
F.2d 883 (C.A. 4, 1969). Plaintiff is, therefore, not a pre-1965 amended
Social Security Act claimant. The decision of the Secretary in this
respect is supported by substantial evidence.

Plaintiff's Second contention is that the settlement of his
workmen's compensation rights was a "redemption settlement" not a
commutation or a substitute for periodic payments within the meaning of 42
U.S.C.A. § 424(b). A copy of the State of Michigan Workmen's Compensation
settlement order of May 19, 1966 is included in the Certification of
defendant, attached to the Answer herein -- Exhibit No. 11, page 118 of
the Certification. It is denominated Redemption Order, and it is to the
effect that the employer's entire liability is redeemed by the agreement
"by a single payment in lieu of weekly payments and all medical benefits."
The net sum payable to the plaintiff was $10,722.00. The Michigan statute
pursuant to which the lump-sum award was made clearly contemplates that
such a lump-sum payment is a substitute for plaintiff's claim for future
periodic payments. See Walters v. Flemming, 185 F.Supp. 288 (D.
Mass. 1960); see also Wohmeier v. W. E. Wood Co., 377 Mich. 176
(1966). The defendant's determination in this respect is supported both by
law and reason and is not erroneous.

We now reach plaintiff's Third contention which he states, in his
February 2, 1970 brief, as follows: "We maintain that Section
224[1] which imposes a formula
for reducing social security disability benefits when the claimant is
receiving workmen's compensation is demonstrably repugnant to the due
process clause of the Fifth Amendment." The statute reads as follows:

Section 224 (42 U.S.C.A. § 424(a)).

(a) If for any month prior to the month in which an individual attains
the age of 62 --

(1) such individual is entitled to benefits under section 423 of this
title, and

(2) such individual is entitled for such month, under a workmen's
compensation law or plan of the United States or a State, to periodic
benefits for a total or partial disability (whether or not permanent), and
the Secretary has, in a prior month, received notice of such entitlement
for such month, the total of his benefits under section 423 of this title
for such month and of any benefits under section 402 of this title for
such month based on his wages and self-employment income shall be reduced
(but not below zero) by the amount by which the sum of --

(3) such total of benefits under sections 423 and 402 of this title for
such month, and

(4) such periodic benefits payable (and actually paid) for such month to
such individual under the workmen's compensation law or plan, exceeds the
higher of -- * * *

Both plaintiff and defendant cite Flemming v. Nestor, 363 U.S. 603
(1960) as supportive of their respective contentions. Plaintiff quotes
from Nestor the test of permissible classification -- "[W]e must
recognize that the Due Process Clause can be thought to interpose a bar
only if the statute manifests a patently arbitrary classification, utterly
lacking in rational justification." Nestor, supra, at page 611. As
to the facts in Nestor and the holding therein, a summary was made
by Circuit Judge Gerald McLaughlin in Price v. Flemming, 280 F.2d
956, 958 (C.A. 3, 1960), which we here set forth.

The Nestor decision --

concerned the suspension of Nestor's Social Security benefits because of
past membership in the Communist party. The district court held that the
right of the wage-earner to the primary benefit was a property right and
enforceable despite the fact that the 1954 Amendments to the Social
Security Act expressly authorized suspension in the particular
circumstances. The Secretary appealed that decision directly to the
Supreme Court. In the latter's opinion, just rendered as above stated, the
Court held:

We think that the District Court erred in holding that § 202(n) deprived
appellee of an "accrued property right." 169 F.Supp. at page 934.
Appellee's right to Social Security benefits cannot properly be considered
to have been of that order.

And further:

We must conclude that a person covered by the Act has not such a right in
benefit payments as would make every defeasance of "accrued" interests
violative of the Due Process Clause of the Fifth Amendment.

The court also held that:

The interest of a covered employee under the Act is of sufficient
substance to fall within the protection from arbitrary governmental action
afforded by the Due Process Clause. * * * Particularly when we deal with a
withholding of a noncontractual benefit under a social welfare program
such as this, we must recognize that the Due Process Clause can be thought
to interpose a bar only if the statute manifests a patently arbitrary
classification, utterly lacking in rational justification.

It is the fact that Nestor, as stressed by both appellant and the amicus
curiae, was not eligible for benefits under the Act until after the
statute covering deportation because of past Communist membership became
effective. Nestor, states appellant, therefore had no accrued property
right. But the Supreme Court did not decide Nestor on that narrow ground.
It expressly rejects the concept of accrued property rights as being a
part of the Social Security System. It describes in terms certain the
identical benefit with which we are dealing as "a noncontractual benefit
under a social welfare program."

It is plaintiff's contention that the benefit reduction provision of
Section 224 is so patently arbitrary and so utterly lacking in rational
justification as to constitute discrimination that is unconstitutional.
Defendant refers to the Senate Finance Committee report prior to the
enactment of Section 224 stating that a purpose of the legislation is to
prevent the payment of excessive combined benefits. Another objective of
the legislation is to avoid duplication of public benefits. Plaintiff
argues that there is, however, no provision for reduction of social
security benefits for a claimant who receives private disability benefits
or who receives a tort damage award. Plaintiff is saying that Section 224,
in effect, has singled out claimants receiving workmen's compensation
benefits as a target for reduced social security benefits, but not
claimants who may be receiving benefits of entirely different types.
Defendant argues that the social security program is to "provide a
substitute, at least in part, of an individual's loss of earnings when he
either retires or becomes disabled." Helvering v. Davis, 301 U.S.
619 (1937); Nierotko v. Social Security Board, 327 U.S. 358 (1946).
It is, therefore, reasonable to preclude a claimant from receiving
amounts, as a result of retirement or disability, far in excess of his
earnings received while working. Viewed in this light section 224 is
analogous to section 203(b) of the Act providing for the imposition of
deductions upon an individual's receipt of social security benefits due to
excess earnings." * * * Defendant cites and quotes from Judge McLaughlin's
opinion, quoted above herein in part, for the proposition that Congress
has the power to impose deductions against retirement benefits in light of
earnings in excess of amounts permitted by statute. It seems to us that
the classification described in Section 224 includes all individuals
receiving benefits under any federal or state workmen's compensation law,
and to that extent it is not patently arbitrary in light of the purpose of
social security benefits. The justification for such treatment is to
prevent unequal benefits for those persons who would otherwise receive
duplicate benefits. In this respect it seems to us to be rational. The
limitation was enacted to prevent the situation which had existed where a
social security beneficiary received full social security benefits plus
state or federal workmen's compensation benefits, compared to one who was
not receiving state or federal workmen's compensation benefits. The
reduction provision attempts to equalize that which was unequal. Plaintiff
contends that it does just the opposite.

The Court of Appeals for the Second Circuit, in an opinion written by
Circuit Judge Robert P. Anderson, dealt with the theory advanced by a
social security beneficiary that a certain discrimination in the Social
Security Act was violative of due process and equal protection. In
Gruenwald v. Gardner, 390 F.2d 591 (C.A. 2, 1968) plaintiff
Gruenwald took issue with the "different and discriminatory criteria"
established by Congress for the "computation of benefits for men and women
at age 62 as a result of the application of 42 U.S.C. § 415(b)(3)." The
Court said that plaintiff disputes "the unequal treatment of two
individuals solely because of sex," and said that plaintiff argued that a
"classification must rest upon a difference which is real." Judge Anderson
did not fail to point out that the difference is real. He also said, at
page 592:

It is only the "invidious discrimination" or the classification which is
"patently arbitrary [and] utterly lacking in rational justification" which
is barred by either the "due process" or "equal protection" clauses.
Flemming v. Nestor, 363 U.S. 603, 611, 80 S.Ct. 1367, 1373, 4 L.Ed.
2d 1435 (1960); Williamson v. Lee Optical Co., 348 U.S. 483, 489,
75 S.Ct. 461, 99 L.Ed. 563 (1955). A classification or regulation, on the
other hand, "which is reasonable in relation to its subject and is adopted
in the interests of the community is due process." * * * [Citations
omitted.]

There is here a reasonable relationship between the objective sought by
the classification, which is to reduce the disparity between the economic
and physical capabilities of a man and a woman -- and the means used to
achieve that objective in affording to women more favorable benefit
computations. There is, moreover, nothing arbitrary or unreasonable about
the application of the principle underlying the statutory differences in
the computations for men and women.

We hold that the benefit reduction provision of Section 224 is not
arbitrary classification, that it has rational justification and that it
is not violative of due process.

With respect to plaintiff's Fourth contention, we set it forth
verbatim as expressed in his first brief. It is as follows:

(4) Assuming only for the purposes of argument that the deductions in the
Act are permissible and applicable to this case, claimant submits that the
following principles should apply:

(a) the 80% crediting clause should apply to claimant's total earnings,
not just to creditable earnings;

(b) that the net amount of the lump-sum settlement received by claimant
must be divided over the length of the exposure period upon which the
settlement was based and then credited against claimant's entitled social
security benefits.

(c) That the Social Security Department must consider the fact that
approximately 41.5 percent of every dollar spent on workmen's compensation
constitutes payment for medical expenses and only prorate the remaining
58.5 percent of the redemption settlement against claimant's social
security payments.

With respect to (a) above, the Hearing Examiner's Decision contains the
answer which is dispositive of he point. In his CONCLUSIONS, paragraph
(2), the Hearing Examiner sets forth Section 224(a), subsections (1)
through (5). We have previously herein set forth subsections (1) through
(4).

Claimant's counsel contended that the 80 percent computation of "average
current earnings" should be based on the total earnings rather than on
earnings creditable for Social Security only, in spite of provision (A) of
the last paragraph cited above, because provision (B) of said paragraph
carries no such limitation. He argued that even though the claimant had no
self-employment, it appeared to be the intent of Congress that the largest
amount available for computation be used. Current Congressional action
makes this contention untenable. The proposed amendments of the Social
Security Act, passed in the House (H.R. 12080) and now awaiting Senate
action, provides, among other changes, as follows:

SEC. 157. (a)(1) The last sentence of section 224(a) of the Social
Security Act is amended by inserting after "his wages and self-employment
income" where it first appears in clause (B) the following: "(computed
without regard to the limitations specified in sections 209(a) and
211(b)(1)).

(b)(1) The amendments made by subsection (a) shall apply only with
respect to monthly benefits under title II of the Social Security Act for
months after the month in which this Act is enacted.

Apparently, the contention of claimant's counsel that an individual's
"average current earnings" should not be limited to earnings covered by
Social Security, in the light of the proposed Amendment, has merit.
However, the very fact that this amendment is now under active
consideration, but with the proviso that it not apply until the month
after the month in which the Amendment is passed, clearly indicates
that this was not its intention when it passed the 1965 Amendments. Ergo,
the use by the Administration of earnings creditable for Social Security
only, was proper in computing the "average current earnings."

We can say it no better.

Again, with respect to (4)(b) of plaintiff's Fourth contention,
the Hearing Examiner's determination is entirely supportable and is
confirmed by us. He states that:

In arriving at its determination that the claimant's benefits be reduced
to $25.80 per month, the Administration used the following computation.
The five highest consecutive calendar years of earnings, after 1950, were
the years 1961 through 1965. In these years he earned, respectively,
$1,790.34; $4,280.93; $4,800.00; $4,800.00; $4,800.00 (the last entries
represent the maximum earnings creditable for Social Security). This
averages out to $341.00 per month during this period. Eighty per cent of
$341.00 equals $272.80. Since the claimant was receiving $247.00 a month
($57.00 a week x 4 ) from Workmen's Compensation, the maximum he could
receive from Social Security was $272.80 less $247.00, or $25.80 a month.
The Hearing Examiner concurs with the computation.

The procedure employed was in accordance with Section 224(b) which
reads:

(b) If any periodic benefit under a workmen's compensation law or plan is
payable on other than a monthly basis (excluding a benefit payable as a
lump-sum except to the extent that it is a commutation of, or a substitute
for, periodic payments), the reduction under this section shall be made at
such time or times and in such amounts as the Secretary finds will
approximate as nearly as practicable the reduction prescribed by
subsection (a) of this section. 42 U.S.C.A. § 424(b).

Lastly is plaintiff's contention that defendant should somehow allocate
41.5 per cent of the workmen's compensation settlement to medical expense
and prorate the 58.5 per cent against the Social Security payment. There
is just no basis, legal or practical, for such a procedure. It would be
contrary to Section 224(b). In addition, there was no breakdown in the
Redemption Order indicating that any particular percentage thereof was for
medical expenses. The lump sum was a substitute for periodic payments and
subject to the applicable statutory provisions.

For the reasons hereinabove set forth, defendant's motion for summary
judgment will be granted. An appropriate order may be presented.

For purposes of clause (5), an individual's average current earnings
means the larger of (A) the average monthly wage used for purposes of
computing his benefits under section 423 of this title, or (B)
one-sixtieth of the total of his wages and self-employment income * * *
for the five consecutive calendar years after 1950 for which such wages
and self-employment income were highest. * * *"

Important Information:

Other Government Websites:

Follow:

External Link Disclaimer

You are exiting the Social Security Administration's website.

Select OK to proceed.

Disclaimer

The Social Security Administration (SSA) website contains links to websites not affiliated with the United States government. These may include State and Local governmental agencies, international agencies, and private entities.

SSA cannot attest to the accuracy of information provided by such websites. If we provide a link to such a website, this does not constitute an endorsement by SSA or any of its employees of the information or products presented on the non-SSA website.

Also, such websites are not within our control and may not follow the same privacy, security or accessibility policies. Once you visit such a website, you are subject to the policies of that site.